TIC legislation is a rent control issue

We're in the most expensive city in the country, and we can't afford another 2,000 condo conversions

|
(177)

OPINION If legislation introduced by Supervisors Scott Wiener and Mark Farrell passes the Board of Supervisors next month, up to 2,000 tenancies in common will be allowed to bypass the lottery process and convert to condominiums.

Add those to the nearly 6,000 conversions that have occurred from 2001-2011 (according to stats from the Department of Public Works), and you have a sizable chunk of rent-controlled units that will have been yanked from our housing stock in the past decade or so in a city that can't afford to lose rental units, especially those that preserve affordability while tenants live in them. TICs are still under rent control; condos lose it when they're sold.

Which makes the Wiener and Farrell legislation a rent-control issue. Not to mention a really bad idea at a really bad moment in time.

San Francisco's perennial housing crisis can't possibly get worse. Rents are the highest in the country — and still rising. The average rent in the city these days is $3,000. The vacancy rate is low.

Ellis Act evictions, a tool for creating TICs by allowing a landlord or speculator to circumvent just-cause eviction protections, are on the upswing. They're not as high as they were at the height of the dot-com boom of the late 90s, but, considering that these days many landlords and speculators threaten tenants with Ellis or buy them out rather than do the dirty deed, the number of folks displaced for TICs is higher than what is recorded at the Rent Board. Some tenants have actually received letters from new landlords with two checkboxes — one for Ellis and the other for a buyout. Take your pick, which way do you want to be tossed out and possibly left homeless?

The folks being displaced are from every district and represent the diversity about which we always brag: longterm, generally low-income seniors, disabled people, people with AIDS, families, and people of color. And they're less likely to find other apartments they can afford.

Wiener claims that buildings where there are evictions will not be eligible for conversion, but many of the TICs currently in the lottery, which will be eligible for conversion under the Wiener/Farrell legislation, were created by evictions. Almost 20 percent of the units in the pipeline were formed before legislation was put into place to restrict conversions if tenants are ousted. How many of the other 80 percent are the result of threats and buyouts, de facto evictions? Or were entered into the lottery even when they shouldn't have been?

Brian Basinger, founder of the AIDS Housing Alliance, was evicted from his apartment for a TIC, yet his place was converted to a condo, despite the fact that he's a protected tenant.

Allowing as many as 2,000 conversions not only diminishes the rent-controlled housing stock, but it also jacks up rents. Not to mention it gives speculators incentive to do more Ellis evictions or buyouts -- after all, though Wiener and Farrell say this is a one-time only deal, once Pandora's box is opened, it's going to be hard to keep it shut. I think landlords and speculators know that.

The Housing Element of the City's General Plan, adopted in 2009, instructs officials to "preserve rental units, especially rent controlled units, to meet the City's affordable housing needs."

This legislation won't preserve rent-controlled units. It's a bad fit for our city.

Tommi Avicolli Mecca, who's worked for the Housing Rights Committee for 13 years, is a longtime queer tenants right/affordable housing advocate.

Comments

Where is the date on whether or not condos are less likely to be returned to the rental market? It seems like there is a general assumption here that once a TIC is converted, it is no longer going to be in the pool of available rental units. But I think that may prove to be false. Many condo owners still rent out their units, thus making your assumption about lack of available housing, false. However, it does not speak to rent control or affordability. The Chronicle reported that rent controlled tenants will receive life-long leases - thus not being able to be evicted. Why didn't you mention this in your article?

Posted by Annoyed on Jan. 22, 2013 @ 8:56 pm

rent out a condo over a TIC precisely because of the partial exemption from rent control, meaning that I can get a viable ROI.

So if Tommi really wants to see more rentals, he should want to see more condo's.

Posted by anon on Jan. 23, 2013 @ 2:11 pm

A lifetime lease would only apply to the person living there now. I imagine tenants groups fear that harrassment of these lifetime leasers or buyouts would ensue. If you got rid of the lifetime lease person, the next person would have no protections, not even future rent increase protection as the unit has now.

Posted by Sigmarlin on Jan. 23, 2013 @ 3:16 pm
Posted by anon on Jan. 23, 2013 @ 3:50 pm

Is what The Weiner has proposed. Do your homework before spouting off in class.

Posted by Guest on Jan. 24, 2013 @ 12:52 am

rent out a condo over a TIC precisely because of the partial exemption from rent control, meaning that I can get a viable ROI.

So if Tommi really wants to see more rentals, he should want to see more condo's.

Posted by Pagerank Checker on Mar. 24, 2013 @ 4:36 am

You are really right about it, agree with you.

Posted by Jada Pirson on Jul. 01, 2013 @ 10:49 pm

Tommi is tunnel visioned when it comes to tenants protection in SF, thats fair enough, thats his thing, but what about me?

I am a TIC apartment owner occupier in the Lower Haight, I pay the bank 6% interest on my mortgage, My neighbor, who has condo status, pays 3%.
I have been in the condo lottery twice and will have to wait another 10-15 years if the rules stay the same, a nice premium interest rate for the banks for a long time.
TIC owners are ordinary people, nurses, muni drivers, carpenters etc, not evil property developers.

Also Tommi is mistaken, rental controls apply equally to condos as to TIC's and I will be no less likely to rent my apartment as a condo vs TIC.

I ask that you give a little back to the middle, we TIC owners are people too, doing it hard as well, I ask that tenants rights community don't oppose the "one off bypass" and let life be a bit easier for whole lot of people struggling to stay in the city just like they are.

There are lots of provisions in the proposed legislation protecting renters and millions of dollars for affordable housing.

Give us a break Tommi.

Posted by Guest Cole Ryan on Jan. 22, 2013 @ 9:38 pm

I'm sorry if you were foolish enough to take out a mortgage to rent from the bank instead of staying a renter. And hopefully eminent domain won't ever be used on you so that you realize you never actually "owned" anything. In a city which has 65% renters, you aren't going to get a lot of sympathy from renters however, especially as you probably displaced a renter to buy your place.

I wish developers would stop trying to muck with the rent controlled units. It's a finite number; buildings before 1979. Anything new, condo etc is market rate housing so can't they just gobble that up and keep building and not try to take every square inch of affordable rental space?

Posted by Sigmarlin on Jan. 23, 2013 @ 3:24 pm

like RC then you can hardly expect them to sit idly by and let you plunder the fruits of their hard work.

Rent control is doomed because it provides no incentive for anyone to ever provide you with a home.

Posted by anon on Jan. 23, 2013 @ 3:52 pm

A city where 65% of the residents are renters is a travesty. Why can't we create more homeownership opportunities for moderate income residents?

Posted by Guest on Jan. 23, 2013 @ 4:46 pm

want people to own their own homes. If more owned their own homes, they would tend to vote more conservatively, and then the pimps, activists and non-profit leeches would be out of a job.

Posted by anon on Jan. 23, 2013 @ 4:49 pm

Good point about the limited number of rent controlled units vs. alternative of creating new housing. I never thought of it this way.

Posted by Jennybody on Jan. 24, 2013 @ 4:59 pm

Interesting angle Cole. I'm a radio reporter and would like to know more about your story. My email is samharnett@gmail.com

Posted by Sam Harnett on Jan. 24, 2013 @ 1:36 pm

Your beef is with the banks apparently. Just sayin.

Posted by Guest on Jan. 29, 2013 @ 3:38 pm

Could that be their beef?

Just sayin'

Posted by anon on Jan. 29, 2013 @ 3:53 pm

Condos aren't subject to rent control due to Costa-Hawkins.

Posted by Guest on Jan. 22, 2013 @ 10:41 pm

Tenants in any building that converts through this legislation will receive life-time leases that will give them the protections of rent control (protections against evictions, and limitations on rent increases). Existing condos my be different but this law protects renters and will raise $20-25 million for affordable housing!
Stop the mis-information, this law does NOT negatively impact renters!

Posted by Guest on Jan. 23, 2013 @ 1:30 pm

Easily done. Landlords have all kinds of tricks. Harrassment, refusal to make repairs, buyouts, eviction for having a guest stay too long. Then the rent control is gone forever on the unit.

Posted by Sigmarlin on Jan. 23, 2013 @ 3:26 pm

No LL willingly gets rid of a good TT paying a market rent. It's when the government interferes with the mutually-agreed leases and makes landlording uneconomic, that LL's then find a way, any way, to get that tenant out.

If you want to avoid ever being evicted, then be a good tenant and pay a decent rent. You'll have that lifetime lease.

Posted by Guest on Jan. 24, 2013 @ 6:47 am

You forget, the apt is market rate when you move in. It was a contract that was agreeable to the owner when the person moved in, yet somehow changes over time. We do not have vacancy control in SF. Rent control merely restricts future rental increases and ties them to normal inflation. So in theory that should cover the LLs expenses each year also. Rentals went up by 12% last year...that has nothing to do with normal inflation rises. Also their costs should go down as we pay off their principals.

LLs are disingenous when they whine about their expenses. You can pass through major repairs to the tenants. You get mortgage interest deductions, rental supply costs, even gasoline to visit the apt. And then there is depreciation which is just ridiculous give that a building lasts longer than 10 years yet it is claimed with each new owner. Our wages pay their mortgages yet they act as if they are slaving away on chain gang.

If the owner bought a building with a tenant who had been there since the 70s and is paying really low rent, that will be reflected in the selling price. You said nothing about being a good tenant that pays low rent being desirable.

Posted by Sigmarlin on Jan. 28, 2013 @ 5:51 pm

itself is massaged down by the government to far below actual inflation rates.

The very fact that landlords are willing to Ellis evict shows that it cannot possibly be a decently profitable business, unless of course you are lucky enough to have turnover.

Landlords I know just do short-term lets to vacationners, visiting foreign academics or corporate lets, because it's the only way you can be sure the tenant will leave. How does that help SF tenants?

And yes, a tenant who pays a low rent cannot be a "good tenant" if you have to subsidize his rent every month. That way, Mister Ellis lies.

Posted by Guest on Jan. 28, 2013 @ 6:47 pm

I deviate from the dogma in supporting some level of carve out for mom and pop landlords so that they can increase rent at the rate of CPI.

Posted by marcos on Jan. 28, 2013 @ 7:16 pm

That's when employers were sagely telling their employees that to get any more than a 2% raise, they were going to have to prove they improved their productivity or mastered new skills.

Posted by lillipublicans on Jan. 28, 2013 @ 8:49 pm

Depends on the year. But I'd give mom and pop landlords with hardship a break.

Posted by marcos on Jan. 28, 2013 @ 10:44 pm

Look, only *part* of the LL's costs increase with inflation. Mainly repair and maintenance... but the *lion's share* of the costs -the mortgage, stays *fixed*.

Assuming the property cash flows well at the time of purchase, the landlord is getting an incredibly good deal under rent control. The tenant builds the LL's equity for him, spends enormous amounts of money to do so, and doesn't get a dime of the profits when the property is sold. The landlord has both his money and the tenant's money working for him.

And if it doesn't cash flow well at the point of purchase, it's the LL's fault for speculating. Either the buyer didn't do their due diligence, or they're consciously banking on appreciation. Well, that's why they call it speculating!
I have some sympathy for those who did their due diligence, expected the property to cash flow, but then it doesn't. In those cases, however, usually there's some misrepresentation involved on the part of the seller. In California, investors are lucky in that regard, because you have legal recourse, unlike in some states where it's pretty much buyer beware. My advice to those LL's: get rid of that lemon ASAP, and sue the guy who sold it to you.

LL's are also lucky in one other way in San Francisco -high income, quality tenants who pay the rent. It's a better pool to draw from than most places.

But wait, there's more! Given that the lion's share of the cost is usually the mortgage, 60% of CPI allows the landlord to actually outpace inflation under most conditions, eventually getting the LL to a point where he can make a tidy income *in addition* to the equity appreciation, without having to actually shlep to work like the poor schmucks paying his mortgage.

One "mom and pop" LL I knew exemplified this situation. He had a small apartment complex for about 25 years. He had a long-term tenant in there paying about $1000 a month, when the mortgage on the unit was probably about $300. And the guy's whining about rent control! Trying to appear "reasonable," he tells me "I don't necessarily want to raise it to $2500 a month which would be market rate, but if I could just raise it to $1700 a month..."

Sorry, but I'm not sympathetic to the plight of such "mom and pop" landlords. He has a good tenant who pays his rent on time, works hard to build the LL's mortgage AND provide him a nice retirement income, while getting none of the profits, and the landlord feels entitled to MORE???
And here's the kicker... WHY does he feel that he should have more? NOT because he needs it to cover the costs, mind you. Oh no, the costs are covered and then some. He feels entitled to more, because it's "what the market will bear." In other words, he wants to get MOAR DAMMIT, just because he CAN!

Well I don't agree with that. I don't look at rent control just as a hardship program to help the needy. I see rent control as a way to regulate prices to ensure some level of equity, REGARDLESS of need of either participant. It has to do with the very ancient principle of "fair price for goods."

Posted by Greg on Jan. 28, 2013 @ 11:42 pm

Great post. Thank you. One thing is, it is rare to find a commercial mortgage with a fixed rate. Most of them switch to the LIBOR after 5 years. Your case is very good, want you to have ALL your facts straight.

Posted by Guest on Jan. 29, 2013 @ 3:45 pm

Thanks for that. I think marcos errs in constantly defaulting to a "moderate" position. Sometimes the left perspective *is* the true and honest perspective.

Posted by lillipublicans on Jan. 30, 2013 @ 9:49 am

case to case, the fact remains that the more below market a rent is, the more likely that tenant will be evicted. So rent control, as well as pushing up marginal rents, also leads directly to evictions and changes of use.

No economic system can be sustained if the profit is capped to something below the ROI of other comparable investments. According to you, rents should be related to an owner's actual costs. That might be acceptable if, as a quid pro quo, it was also related to a tenant's ability to pay. There is no reason why someone on 150K per annum should have his rent subsidized by a mon-and-pop landlord making much less.

Posted by anon on Jan. 30, 2013 @ 10:08 am

bad decision making by property owners, who know the rules and the existing rents when they buy the property.

If the numbers don't pencil out (without counting on eviction,) then these owners are bad at business. Too bad. That's a fundamental part of the ideology (free market capitalism) that you constantly espouse here.

Of course, if these landlords were banks, defense contractors, health insurance providers, then the rules of the free market would be ignored.

Posted by Eddie on Jan. 28, 2013 @ 11:48 pm

Once again, we find ourselves writing very much the same theme... and once again, you said it more succinctly.

Posted by Greg on Jan. 29, 2013 @ 12:01 am

anecdote. Now, if I can just convince you to give up on the Democratic half of the corporate/war party.......

Posted by Eddie on Jan. 29, 2013 @ 12:12 am

2-4 unit owner-occupied buildings were exempt from rent control until 1994. Those who bought them knowing that were then whipsawed when the law changed.

Same with the OMI law changes of 1998.

You overlook that side of things.

Posted by anon on Jan. 29, 2013 @ 3:58 pm

affect the TIC owners pushing to eliminate the condo conversion lottery.

Posted by Eddie on Jan. 29, 2013 @ 4:09 pm

amnesty for those who bought in good faith have been kept waiting for years because of the city's restrictive policy.

They are almost all recent tenants and people trying to better themselves. Why punish them?

Posted by anon on Jan. 29, 2013 @ 4:27 pm

TIC owners pay more property taxes than most comparable rental units because they have higher assessed values due to Prop 13. My building pays over $40,000 a year, while 2 similar sized, non-owner occupied, landlord owned apartment buildings on the same block pay less than $3000 each.

200 units converting a year for 10 years is 2000 units - but DPW says 6000 in the last 10 years. That's because there's an existing, fee-free, bypass that allows an unlimited number of 2-unit buildings to bypass EVERY year. Why don't you protest that?

Instead, your reasoning seems to be to use your neighbors as deterrents by keeping them in financial distress and uncertainty indefinitely instead of letting them pay up to $20,000 per unit to get themselves out of the perfect storm the mortgage crisis, their budget and SF's policies and laws have combined to create.

After all, no one forced them to buy TICs. If they wanted to buy but couldn't afford "real" housing in SF, they should have moved somewhere else. Or kept their rent-controlled housing.

Posted by Guest on Jan. 22, 2013 @ 11:18 pm

means it's still affordable.

yes, many condo owners rent out their unit(s). But it's not rent-controlled, meaning they can double the rent if they want to with a 60 day notice. My landlord just did that after living here for 2 years.

in 2 years, the market rate has doubled!

to the TIC owner who gripes about paying 6% interest to a bank vs. the neighbor's 3%, and is an ordinary person not an evil developer. Yeah, that sucks. And unfair. But you're wrong that Rent control still applies to condo's. It doesn't. It's nice that you are trying to appeal to the renter community, but it's disingenuous because this legislation will have a clear consequence; It will still help you, and hurt renters. I'm sure you're a nice person, but there are many renters out there who I am sure are struggling far far worse.

Posted by Guest on Jan. 22, 2013 @ 11:30 pm

When a renter rents a unit that is subject to rent control, it is ostensibly theirs for the keeping. That’s the theoretical point of rent control, to allow for future financial certainty in the cost of a renter’s housing. The renter cannot be evicted except for a handful of reasons (and then only with generous compensation). However, if the same TIC owner lives in their unit, you suggest that they should not have the same financial certainty as to the cost of their housing. You suggest that some future renter, that does not yet even live in this city, has a claim to this TIC owner’s unit. You suggest that it is more important to protect this fictional “future” renter, who will rent at what is then “market rate”, from rent increases. That’s crazy. Talk about unequal treatment. The Tenants Union motto should be, “If you rent…you can stay. If you want to own…go away!”

Posted by Renter_who'd_like_to_own on Jan. 23, 2013 @ 10:37 am

Costa-Hawkins only stripped out control of rents.

So someone who rents a condo does have security - he cannot be evicted without just cause.

Posted by anon on Jan. 23, 2013 @ 2:13 pm

Costa Hawkins allows it on a condo. So you remove the tenant by their inability to afford it and don't have to pay the pesky lawyer fees for a real eviction.

Posted by Sigmarlin on Jan. 23, 2013 @ 3:31 pm

would be deemed a "constructive eviction".

Posted by anon on Jan. 23, 2013 @ 3:54 pm

is subject to rent control. And ask whether it is a condo which, in any event, can be checked in public records.

If the tenant chooses to rent a condo, then he is presumably expecting the possibility of market rent increases. Nothing wrong with that.

Posted by Guest on Jan. 23, 2013 @ 11:29 am

The reason the prices are so high is because of massive demand that is not being met. If you want to fix the problem, stop continuing this downhill battle with property rights that any economist will tell you is not a fix, since rent control exasperates housing shortages.

DEMAND that the zoning be changed to allow some areas to build massive amounts of housing, without restriction in regards to density or size. The widely publicized proposal to allow slightly smaller units is a drop in the ocean of this problem.

Keep your eye on the real ball... you can't change the laws of supply and demand, you can only impact the amount of supply.

Posted by Supply and Demand on Jan. 23, 2013 @ 7:25 am

is why most of SF's NIMBY activists are also homeowners. Every new housing development they can suppress increases the value of their own home. The fact that is hurts new arrivals doesn't matter to them, because they've already got their piece of the action.

Posted by Guest on Jan. 23, 2013 @ 8:26 am

The TIC's that would be eligible for conversion are owner-occupied. Any eviction that led to a vacancy happened long ago, and so allowing these conversions will not evict a single tenant. Nor will they encourage future evictions since this offer may not be repeated. And of course buildings that have been Ellis'ed are ineligible for condo anyway by existing law.

All this does is allow thousands of people trapped by TIC's to have a betetr form of ownership.

Tommi is alo wrong when he states that the Ellis Act was designed with TIC's in mind. In fact, TIC's are rarely seen outside SF, but Ellis is a State law. It's purpose was to stop municipalities forcing landlrods to rent out units when they no longer wish to - a perfectly reasonable and constitutional provision.

Posted by Guest on Jan. 23, 2013 @ 11:27 am

TICs were a real estate trick to get around the 200 a year condo law. And yes long term renters in long term rental units were evicted to create them. So now you are suggesting that we reward the owners because they were clever enough to cheat the condo system? I'm not following why that should be the case. If they were so eager to buy they could have bought a unit made after 1979 since there is no rent control of those units.

Posted by Sigmarlin on Jan. 23, 2013 @ 3:37 pm

tenant and that was to live in it myself, which is perfectly valid under rent control.

You really do not understand how the market works.

Posted by anon on Jan. 23, 2013 @ 3:55 pm

Our story: 3-unit TIC in the condo lottery for 7 years now. All units are owner-occupied, 2 of which are by families with children, 1 is a single middle-aged doctor. We, like the other TIC owner mentioned, pay about 6% interest on our joint, jumbo loan. We cannot refinance due to the fact that it is a jumbo loan and despite real home values rising, appraisals are coming in stagnant. There were no other options for young, middle-class families (yes, we are middle class, esp. compared to our neighbors) to stay in the community, other than to continue renting.

If we were able to convert to a condominium, we would be in a much better place to refinance at a lower interest rate, which would allow us to put money back into our property by hiring local tradespersons and continue to raise our children with the security of being able to make the same payments for years to come.

We are simply looking for a way to allow our middle-class families the opportunities that those with higher incomes have, without taking anything away from those with lower incomes. We are not looking to rent our flats out for outrageous rents. We are not looking to rent our units as VRBO's or AirBnB's. We are just trying to water our roots so our family can grow and stay in San Francisco.

Posted by Guest on Jan. 23, 2013 @ 11:45 am

TIC's are the lowest, cheapest rung of home ownership in SF, and so typically house first-time buyers i.e. those who rented themselves before buying the TIC.

So does Tommi's interest in people like you end as soon as you scrimp and struggle to buy your first hom? Do you instantly go from being someone to be saved to someone to be persecuted and condemned.

The average TIC owner is far from the one percenters that Tommi likes to disdain. They are simply tenants with ambition.

Posted by Guest on Jan. 23, 2013 @ 12:05 pm

Once you buy a TIC, you literally are stuck with that unit, even if life circumstances require you to move to different city. Because once you move out and rent out your unit, it decreases your eligibility to win the condo lottery. THAT is one of the problems that decreases number of rental units. I'm surprised that no one talks about this issue.

Also, with this law being that is being proposed, once your TIC unit becomes condo, your tenant will have a lifetime rent control. So this Tommi guy is obviously didn't read anything before he writes. Poor, not-so-smart guy. You should ask for refunds from the school if you ever attended one.

Posted by Guest on Jan. 23, 2013 @ 1:20 pm